Australia’s (and Qld’s) climate change policy predicament

Yesterday, the Financial Times published a blistering op-ed by its Chief Foreign Affairs Commentator Gideon Rachman: Australia is no longer the lucky country (NB pay-walled). It is one of the best summaries of Australia’s current predicament over climate change I’ve read. Rachman concluded his piece with the observation:

…Australian climate activists and their opponents are indulging in forms of wishful thinking. Conservatives argue that the facts around climate change are still contested and that nothing much needs to change. Those on the left argue that if the country summons up the will to take drastic action, it can make the future less threatening. But this Australian summer suggests that the future may already have arrived. And it looks frightening.

As Rachman notes, even if Australia shut down its coal mining industry, climate change would not be averted, as Australia’s contribution to global greenhouse gas emissions, including the contribution from Australian coal, is only 4%. But we need to show our willingness to do more than we have been doing. And we need to work hard to encourage the major economies, particular the US, China, Japan, and the EU, to enact policies that will bring about the large cuts in emissions globally that are increasingly appearing necessary to avert even worse outcomes.

The Australian Government has announced it will release a Technology Investment Roadmap as part of its revised response to climate change (see this Australian article). Australia’s Energy and Emissions Reduction Minister Angus Taylor has commented that:

The best way to deliver on and beat our international commitments is through new, productive technologies and practices that reduce emissions while maintaining or strengthening economic growth.

This may well be true, but it’s unclear why the Government needs to release a Technology Investment Roadmap, which has a whiff of central planning about it.

As Warwick McKibbin and Ken Henry note in their comments to The Australian, the most efficient, least cost way to achieve the necessary emissions reductions is through a market signal, a carbon price, whether via an emissions trading scheme or a carbon tax. Let private enterprise work out the best way to reduce emissions. On this point, have a listen to the excerpt from my interview with John Quiggin in my Economics Explained highlights episode. The Technology Investment Roadmap’s policy prescriptions could end up costing Australia more per tonne of reduced emissions than if we implemented a carbon price. We could end up heavily subsidising uneconomic Carbon Capture and Storage plants, for example.

Ross Garnaut also made an important contribution to the national discussion on bushfires and climate change yesterday. Among other points, Garnaut suggested Queensland needs to start preparing its coal-mining-dependent communities for a future in which we mine less coal as a result of the future global response to climate change (listen to Ross Garnaut’s 12-year old climate change prediction is coming true). There will have to be some rigorous thinking done on how we should best prepare for the structural change that is likely to occur in the next few decades. My Adept Economics Research Assistant Ben Scott and I recently published an article on structural change policies in which we summarise our understanding of what economic theory and evidence suggest is the best approach:

Structural adjustment policies becoming increasingly important

Also, I make some observations on climate change and structural change in my Economics Explained episode:

Big economic issues for the 2020s

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7 Responses to Australia’s (and Qld’s) climate change policy predicament

  1. Alexander says:

    All this technological change is precisely why we should have sold our coal fired power stations all those years ago… We will be stuck with worthless assets in no time.

  2. Jim says:

    Gene

    Great post. Ross Garnaut’s Superpower is well worth a read to understand some of the potential opportunities that could come Australia’s way if we are smarter in the transition to renewable energy, including value adding to our vast iron ore resources etc. But given the economic life (long) and the cost structures (very low variable operating costs) of much of the energy infrastructure and processing/manufacturing involved, if Australia is not a place conducive to these investments (it isn’t due to climate policy uncertainty), missing out on the opportunities in the near-term probably means we miss out on the opportunities for a generation. And as Ross Garnaut points out, many of these opportunities are in the regions.

    Australia doesn’t need a technology roadmap, when investors already have a fully functional ‘investment GPS’. Unfortunately the investment GPS is loaded with almost any country except Australia despite our renewable resource advantages.

    The technology roadmap is just kicking the can down the road, and the economic cost of faffing around is massive.

  3. Sean Trainor says:

    Gene the structural adjustment policies link appears to be broken

  4. Russell Rogers says:

    Whilst we should prepare structurally for a transition to a low or no coal trading environment I fear that most people and the politics involved do not consider what we have. For a start much of QLD coal is coking coal for steel production. There is no cost effective alternative although there will be one eventually. Until that happens we should not even consider cutting these exports because they will only be substituted for alternative supplies which may be of lower quality. Our Bowen Basin, Surat Basin and Hunter Valley thermal coal are typically premium products. These have energy in a range around 6500 kcal/kg, low ash and low sulphur. These types of thermal coal should be promoted as an alternative to lower energy and higher ash/sulphur coal that is typically supplied from Indonesia and other Asian counties where they are used like China and India. But of course the power station needs to be able to make use of these. The Galilee Basin coal is of lower energy (around 5000 kcal/kg) and higher ash but still a good substitute for Indian coal which typically has much lower energy and far higher ash. Note that higher energy means that less coal is burnt and less CO2 and gaseous pollutants produced for the same electricity production. Ash produces dust if the electrostatic precipitators on the stacks are not good enough. My figures can all be open to question and refinement but I am sure you get the drift. In my opinion, we should be promoting our coal as part of the interim solution to reduce CO2 and other pollution globally. In this respect, our coal should be one of the last to leave the world trading market and that should go one until at least 2050. Problem is that many of the noisiest political commentators think that by us reducing our coal exports that the world will reduce coal demand which is a long way from reality as it is expected to increase to around 2030 and only then will it start to decrease.

    • Gene Tunny says:

      Many thanks for the comment Russell. You make some very good points here, particularly regarding our coal being able to replace lower quality coal elsewhere in the world.

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